Developing countries still have to regain lost ground from the COVID-19 pandemic. The pandemic has put more countries at risk of debt distress, constrained their fiscal space and hampered economic growth. The war in Ukraine is exacerbating all these challenges. In this context, the 2022 Financing for Sustainable Development Report identifies a “great finance divide” – the inability of poorer countries to raise sufficient resources and borrow affordably for investment. The great finance divide leaves developing countries unable to respond to crises and invest in sustainable development. On average, developed countries use 3.5 per cent of revenue to pay interest on their debt, versus 14 per cent of revenue for the least developed countries. About 60 per cent of LDCs and other low-income countries are now assessed at a high risk of or in debt distress, double the 30 per cent in 2015. The Ukraine conflict is compounding stresses, through higher energy and commodity prices, renewed supply chain disruptions, higher inflation coupled with lower growth, and increased volatility in financial markets.
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